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Navigating cash and treasury: 3. Enhance cash and liquidity forecasting

July 29, 2020

Do you have the data needed to determine cash investments, secure borrowing, and make better hedging decisions?

Today, the most successful financial services organizations are more focused on what’s necessary to safeguard business continuity and solvency. Much of this begins with greater visibility and reliability of key data to help drive critical business decisions—especially during times of crisis.

Download the eBook: Cash and treasury: Best practices for navigating uncertain times

Our current blog series is reviewing cash and treasury best practices during uncertain times. The previous post discussed effective cash positioning and this week we focus on improving cash and liquidity forecasting.

Consideration #3: Enhance cash and liquidity forecasting

Treasurers don’t typically have access to a company’s full cash picture. Though efficient business operations require working with multiple financial services organizations across different markets, complex banking structures and sprawling geographical footprints make it difficult to achieve complete visibility into current balances and to measure the accuracy of cash forecasting.

While cash positioning can be used to predict accurate cash flows in the coming hours and days, cash forecasting looks further ahead to the coming weeks and months. Cash forecasting also provides a gateway to an organization’s FP&A group’s cash budgeting—which typically looks forward several years.

To achieve highly accurate cash forecasting, organizations need to evolve from Excel® spreadsheets and other stand-alone tools that provide a limited snapshot of data. Without complete confidence in projected forecasts, the cash forecast can’t support corporate treasury’s goal of improving cash utilization. Organizations should implement best practices and tools that are specifically designed to provide highly accurate, real-time cash forecasting.

Effective cash forecasting provides the data needed by corporate treasury to determine cash investments over longer maturities, secure borrowing to fund operations, and make better hedging decisions. Confidence in the cash forecast is the difference between achieving these outcomes and only hoping to do so.

Unfortunately, many companies struggle to achieve accurate forecasts. This can be for many reasons, with some of the more common challenges including a scarcity of accurate data sources, ineffective methodologies, and a lack of alignment with performance metrics. Some best practices and ways to improve the effectiveness of forecasting and monitoring include:

  • Collaborating with other teams—Forecasting should incorporate data points from key sources throughout the business to facilitate effective collaboration between multiple entities
  • Consolidating forecast data—With forecast data coming from multiple physical sources—such as spreadsheets and various modules within an organization’s ERP system(s)—all that data should be integrated into a single system of record so that all entities have access to the same information.
  • Measuring forecast accuracy—Measuring forecast performance is critical to evaluating the effectiveness of each line-item and the data sources and this can provide valuable insight into specific areas where cash forecasting can be improved.

Next week, we’ll discuss how to establish intraday liquidity monitoring capabilities.

If you would like to discover more about cash and liquidity forecasting and other related topics, we invite you to download this eBook on how to navigate uncertain times and elevate cash and treasury.

Filed Under
  • Financials
  • Banking and Financial Services
  • CloudSuite Corporate
  • Liquidity Management (Realiti)
  • Infor Treasury Management
  • Worldwide
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